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Enron row to make investors wary, but Asia inflows seen steady

A bitter payment battle between US energy giant Enron Corp and authorities in India will serve as a reminder to foreign investors of the risks of putting money into emerging markets, analysts and bankers say.

They, however, pointed out that it is unlikely to deter the flow of money into Asian electricity projects.

The pace of power privatisation and deregulation varies too greatly from country to country for the controversy in India to chill investment activity across Asia, they say.

It does, however, underline the risks companies take despite some security offered by government payment guarantees.

"Independent power producers will see Enron and Dabhol as an illustration of the dangers and possible risks of investing in an emerging market, but it would be going too far to say that other markets will be adversely affected because of it," said Philip Jackson, a banker with JP Morgan Chase in Hong Kong.

Enron is on the verge of bailing out of an almost-completed $2.9-billion power project because of a dispute with the troubled Maharashtra State Electricity Board over pricing and unpaid bills.

MSEB has fallen about six months behind in paying for electricity supplied by Dabhol Power Co, the Indian unit of Houston-based Enron.

The utility said last month that it had repaid about $28.6 million of the $48.2 million outstanding.

The board of Dabhol has authorised the management to stop selling power to MSEB if the dispute is not resolved. Local media reports earlier in May said Enron was pulling executives out of India and relocating them elsewhere.

Dabhol has invoked payment guarantees issued by the state and federal governments, but neither has stepped forward to foot the bill.

Government guarantees

Banks often demand sponsor or host government guarantees to lessen risk before financing energy projects, which have long lead times and high capital expenditure.

Governments are keen to provide guarantees to attract foreign investment. Guarantees may cover shortfalls in production, default of customer payment or even changes in market conditions.

But such guarantees do not always provide the desired safety net and analysts said the legal systems in many emerging nations are simply not efficient enough to back these agreements.

Enron's experience in India highlighted the risks of power investment in emerging countries and the unpredictability of government guarantees, they said.

"Guarantees like that are painful for companies and for polititicians they're even more so," said John Vautrain, vice-president at Purvin & Gertz in Singapore.

"If the call is substantial, it's going to be bad."

Robert Booth, director of the Bardak Group in West Perth, Australia, was more pessimistic and reckoned some companies might take a lead from Enron and shy away from emerging Asian nations.

"Investors will pull back from these countries until they see that there is a properly functioning legal system that gives them assurance if they have to call in a government guarantee," Booth said.

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History of Enron's Dabhol power plant: Reuters

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